Never Go Full-Kuroda: NIRP Plus QE Will Be Contractionary Disaster In Japan, CS Warns
He was full-everything. Full-Krugman. Full-Keynes. Full-post-crisis-central-banker-retard.
In fact, with the BoJ monetizing the entirety of JGB gross issuance as well as buying up more than half of all Japanese ETFs and now plunging headlong into the NIRP twilight zone, one might be tempted to say that Kuroda has transcended comparison to become the standard for monetary policy insanity.
The message to DM central bank chiefs is clear: You’re either “full-Kuroda” or you’re not trying hard enough.
But as we’ve seen, the confluence of easy money policies are beginning to have unintended consequences. For instance, it’s hard to pass on NIRP to depositors without damaging client relationships so banks may paradoxically raise mortgage rates to preserve margins, the exact opposite of what central banks intend.
And then there’s the NIRP consumption paradox, which we outlined on Monday: if households believe that negative rates are likely to crimp their long-term wealth accumulation, they may well stop spending in the present and save more. Again, the exact opposite of what central bankers intend.
In the same vein, Credit Suisse is out with a new piece that explains why simultaneously pursuing NIRP and QE is likely to be contractionary rather than expansionary for the real economy in Japan.
In its entirety, the note is an interesting study on the interaction between BoJ policy evolution and private bank profitability, but the overall point is quite simple: pursuing QE and NIRP at the same time will almost certainly prove to be contractionary for the Japanese.
Here’s how the chain reaction works.
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